Further easing expectations may lift UK stocks
Recent UK indicators have been better than initially feared after Brexit vote. Will the GB 100 index resume rising?
GB100 stock index actually has risen more than 5% after Britain voted to leave the European Union on June 23. Recent macroeconomic data have been better than initially feared. July Industrial production rose 0.1% compared with no change in June. Inflation in August rose 0.3% over month after 0.1% decline in July. On Wednesday labor market report showed an increase in UK employment by 174 thousand to a record high of 31.8 million as unemployment in the three months to July fell 39 thousand and unemployment rate remained stable at 4.9%. But at the same time retail sales in August fell 0.2% over month compared with 1.9% increase in July, and the growth in average earnings slowed in July. The Bank of England left the interest rate unchanged at 0.25% after 0.25 percentage point cut in August and left the stimulus program unchanged at 435 billion Pounds in annual asset purchases after 60 billion Pound increase in August. The central bank signaled readiness for further easing as it considers the outlook for UK economy essentially unchanged since last policy meeting. It is to be seen yet will the consumer confidence improve after declining in July. On September 29 Gfk Consumer Confidence index for September will be published, it is expected to improve from previous month. And on October 7 higher reading of Industrial Production for August will is expected to be released.
On the daily chart GB 100:D1 has been declining after hitting 14-month high in mid-August. The price is moving in a downward channel.
- The Parabolic indicator has formed a sell signal.
- The Bollinger bands have widened, indicating increasing volatility.
- The MACD indicator is below the signal line with the gap narrowing. This is a bearish signal.
- The stochastic oscillator has crossed into oversold zone, which is a bullish signal.
We believe the bearish momentum will continue after the price breaches below the last fractal low at 6649.65. This level may serve as a point of entry for a pending order to sell. The stop loss can be placed above the last fractal high at 6896.64. After placing the pending order the stop loss is to be moved every day to the next fractal low, following Parabolic signals. Thus, we are changing the probable profit/loss ratio to the breakeven point. The most risk-averse traders may switch to the 4-hour chart after the trade and place there a stop-loss moving it in the direction of the trade. If the price meets the stop-loss level (6896.64) without reaching the order (6649.65) we recommend cancelling the position: the market sustains internal changes which were not taken into account.
Technical Analysis Summary
| Position | Sell |
| Sell stop | Below 6649.65 |
| Stop loss | Above 6896.64 |